Safaricom May Meet Regulator’s Network Demand With Essar Buy

Safaricom Ltd.’s purchase of Essar Telecom Kenya Ltd.’s assets may help address demands that the company improve its network before being granted a new license, said analysts including Evelyne Wanjiku at Genghis Capital Ltd.

Safaricom, based in Nairobi, and rival Airtel Kenya Ltd. plan to spend a combined $100 million to buy Essar, according to Christopher Wambua, spokesman for the Communications Commission of Kenya, the industry regulator known as the CCK that’s reviewing documents submitted by Essar. Safaricom declined to comment beyond it’s March 4 announcement on the talks, Corporate Affairs Director Nzioka Waita said today by e-mail.

Safaricom failed to meet the regulator’s quality-of-service criteria in 2012-13, achieving a compliance level of 50 percent compared with the minimum of 80 percent. The company must meet minimum quality-of-service standards to obtain a new license, the commission said in July. Safaricom’s permit expires in June and will cost $27 million to renew, according to the CCK.

“The purchase of Essar’s infrastructure by Safaricom will greatly improve the quality of service offered by the firm because the lingering problem at Safaricom has been lack of spectrum, which it will now get with this new deal,” said Wanjiku, a research analyst at Nairobi-based Genghis.

Safaricom, Kenya’s largest company by market value, has a 67 percent market share, controlling 79 percent of voice traffic and 96 percent of all mobile text messages, according to data compiled by Bloomberg Industries. Essar operates the Yu mobile brand in Kenya, the third-biggest of the country’s four operators with 2.7 million subscribers.

Subscriber Boost

Airtel Kenya, owned by Bharti Airtel Ltd. (BHARTI), India’s largest mobile operator, plans to acquire the subscribers and Essar’s licenses, spokesman Mike Okwiri said in a March 2 e-mail. That would boost Airtel’s Kenyan market share to 26.4 percent from 17.6 percent, according to Bloomberg Industries.

Safaricom’s acquisition of infrastructure including base stations will probably be financed from the company’s cash resources, which currently amount to almost 20 billion shillings ($231 million), Moses Waireri, head of research at Sterling Capital Ltd. in Nairobi, said in an e-mailed response to questions.

“Acquiring Essar’s infrastructure will not only offer Safaricom a large platform to deliver better quality of service, but it can also generate additional revenue by leasing out any extra facilities,” Wanjiku said.

Market Share

Essar Telecom began operations in Kenya in December 2008 after purchasing Econet Wireless Kenya Ltd., previously owned by Zimbabwean investor Strive Masiyiwa. The company’s market share fell to 8.3 percent in September 2013 from 9.6 percent a year earlier, according to the regulator.

In December, Safaricom bought the company’s 10 percent stake in the East Africa Marine System undersea fiber-optic cable, enabling it to offer faster and more efficient Internet data services in addition to upgrading its network to 4G.

Shares in Safaricom, which is 40 percent owned by London-based Vodafone Plc (VOD), more than doubled last year, outperforming a 36 percent increase in the FTSE NSE Kenya 25 Index. The stock has climbed 8.3 percent this year.

To contact the reporter on this story: Charles Wachira in Nairobi at cwachira@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net Alastair Reed

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